. welcome to "worldwide exchange." these are your headlines. air strikes between israel and gaza continue. the egyptian prime minister vows to spare no effort to achieve a truce. in 30 days, japan may see its seventh prime minister in six years as the country dissolves its lower house and sets the stage for a possible comeback. and president obama meets with top u.s. lawmakers to begin budget talks as the fiscal cliff looms. both sides are digging in their heels on on tax hikes and spending hikes.

against all of the political changes we're seeing today, first i want to show you the market action. stoxx 600 is sitting roughly flat, but we've seen interesting trading session where the nikkei really surging to the up side again today. more on that in a bit. take a look at what's happening across europe because after a couple of uglier days in the market, we're seeing something of a comeback now led by technology, retail stocks are also in the green, food and beverages, autos among the sectors dragging on the in-dek. we can take a closer look at the bourses. ibex is down. ftse 100 sam thing, so we'll keep an eye on all these levels as the show progresses this morning. the bond space is where we've been focusing our attention with

spain and greece on. spain today seeing prices rise, yields coming down to 5.78%. italy seeing a bit of a rally, too. selloff for britain and bund oigs boig benefitting. quick look at information rek. 81.02 is the left. down another tenth of a percent. euro-dollar is lower by a quarter of a percent. nymex and brent both adding to their levels as we see continued unrest across the gaza strip. gold, though, is lower. let's get out to asia. it's china, japan, which are dominating trade morning.

markets wrapped up the week on a mixed note. nikkei ended at a two week high. hopes of more policy easing. the yen trading around the 81 handle versus the greenback. shares in china extended losses and down 2.6% this week. no real policy cut list after china unveiled its new team of leaders. oil leaders lost ground after beijing cut the retail fuel prices, but environmental plays bucked the downward trend yet again on hopes of more government support. the hang seng index managed to eek out modest gains. walmart posted disappointing earnings. the htc shares surged nearly 5% on on news its market share has doubled in q3 from the previous

quarter. a south korea automakers were morning the gainers with kia jumping 6%, but technology majors bell majors tumbled. and weak bank shares weighed on the asx 200. this is its biggest weekly fall since late may. kelly, back to you. >> thanks very much for that. joining me treasurer of the corporate banking position. welcome. >> thank you. >> so what do you make of the market action? it really hasn't been friendly lately. >> no, there's a lot of uncertainty again as usual. markets never like that. i know it's a cliché, but very accurate. we have an escalation on top of the existing uncertainties. and then the japanese announcement. friday afternoons in the '90s we

just sat on our hands. so we think some of that on top of the uncertainties and strikes and riots, it's not a time where you would think i'll be optimistic for the next one to three years. >> or even going into a weekend. >> absolutely, yes. >> coming up, we'll take a look at what's happening with the nikkei flying high on further easing. we'll be live in tokyo with the latest at 10:30 cet. and we'll have analysis in washington where obama kicks off budget talks. we'll also talk with russian markets and what stocks make a good investment as angela merkel heads out to moscow to meet putin. that's at 10:30 cet. and 11:20 cet, we'll head out to connecticut to talk holiday shopping in the consumer electronic space. one analyst says trends are set to improve. plus christine lagarde is saying eurozone leaders must reach agreement on greece at their

summit next week, but when asked if the deal would happen, this was lagarde's candid relay. >> it's not over until the fat lady sings as the saying goes. and i would not say anything else p. it's a question of working hard, putting our mind to it, making sure working on the objective that greece cannot operate on a sustainable basis. ftc says expected to approve at a party gathering on december 5th, that the ecb's offer to buy debt must be temporary. we've heard from lagarde there talking about how it ain't over until the fat lady sings. at the same time.

>> there isn't the equivalent of a fat lady in this scenario here, so i'm not sure before -- >> what did she mean by that? >> precisely. i think she was trying to say it isn't ove over until we've all down and worked through every computation and see what we come up with. but of course as you quite relevantly pointed out, there's a general election next year, so they would probably try as much as possible to again in-he will gabt expression kick the can down the road with respects to greek sovereign debt. i don't imagine they will reach an agreement on on reductions just next week. if you're serious, you need to cancel its sovereign debt.

otherwise people will be laid off and they can't raise tax revenues. but would you propose that 23 you we if you were the german chanceler? >> even if they come to the real sailgs that it will happen, is there any chance it it will happen before the next election next fall? >> it's unlikely. it's thanks to the ecb action that we've stepped back from the brink. so that's kind of kept it quiet. but it just simply postpones the ultimate fiscal union political solution that the eurozone needs if it's going to stay viable in its current form. so you're right, i don't think there would be an ultimate solution ahead of next automatic tim. this wouldn't test bond prices as long as they think the ecb is standing there to assume the market.

the eurozone must implement a credit market under a super vicery team. speaking to cnbc, he also said rome still has a lot of work to do to turn its economy around. >> from agenda that we put in place, it doesn't end here. we have to keep pushing and progressing in our restructure of the italian economy. >> you can e-mail us worldwide@cnbc.com and we'll show a little bit more of that interview with the italian he finance minister at 10:45 c event t. everything's in cet. central european time. >> is that the market standard? sgr i suppose. i can't even figure on out what time standard we're on anymore. but in any case, we're hearing

from him there and thinking through you the dynamics of what each economy has to achieve while being hamstrung in this broader union. if you're in italy right now, what do you do, what can you do going into next year? >> you you are right to use the word hamstring. the global recession was bat, but in the eurozone, it was much worse because of the arrangement of the euro. and we are hamstring because they can't devalue competitively, they're stuck with high public sector spending problems. so italy heal ras to look at the labor markets. it's one thing we should be targeting throughout which is trying to cent to create jobs. that means freezing payroll taxes, looking at the supply side, looking at the corporate

sector to create jobs. >> japan is going to the polls on november 16th. just hours ago, noda signaled a possible end to his leadership of the world's third largest economy. japan's opposition ldp party is widely expected to stage a comeback with former conservative prime minister at the helm. they promise to rufrp gentlemet growth to 3%. strengthen relationships. but should we be at the point of sort of waving our hands and saying we can't did anything about central bank independence or should we be at the point that we should have seen this kind of aggression two, three decades ago? >> the debate has actually moved on on. i do like the expression that they wanted to strengthen cooperation. does that mean they take more

government direction? the debate's moved on. central bank policy is still important, but there are other issues, as well. it's probably less relevant when the debate is no longer about just monetary policy. japan's had zero interest rate for a decade. >> they'll say will is a dangerous game because you lose the public's confidence and you'll ultimately end up down the road to suffer dom or whatever. >> and i don't disagree with any of that logic. it's who are to do with the labor market, with other policies and also with your structural budget problems. government spending, public sector spending isn't sustainable in the western world and indeed i would say japan given aging population, growing

young workforce. all these things means we cannot carry on spending the way we have been. and that's a painful thing. cutting back public sector spending is very difficult to do. central banks have acted correctly, but look at what's happening. we're still struggling to come out of recession most pointedly in the eu. >> we'll bring you more analysis live from tokyo in a little bit. first, though, president obama will begin budget talks with top lawmakers today in hopes of avoiding the fiscal cliff. he'll meet with harry reid, mitch mcconnell, john boehner and nancy pelosi at quarter after 10:00 eastern time. mcconnell says republicans won't

raise tax rates. the white house says the president won't sign an extension of tax cuts for top earners. chinese officials including the country's vice minister are sounding alarm bells with external risks to growth. they hope the uts will come to an agreement on tax issues or warns the country could face a slide into deep recession. eunice yoom is taking a closer look at the relationship between the two economic super powers and how they're likely to proceed. >> she's sitting down to her regular taste of americana. she and her co-workers dine out at their favorite fast food joint from the west twice a week, exactly the kind of middle income chinese american companies hope will drive their future growth. >> translator: we're used to eating rice, she says. it's convenient and nice to have fast food once in a while and

have a change. american companies are hoping gnaw leadership will make it easier to sell to chinese consumers. the two countries are relied on each other for deck azs. walk into any major shopping mall in beijing and you can see how important the relationship is between the u.s. and china. there are american brands everywhere. companies like mcdone olds are sinking their teeth into the china market. china is one of the biggest markets outside the u.s. in return mcdonald's hires thousands chinese. china is become abouting a major destination for american goods. but with the global economy struggling, tensions between the two major trading partners have been rising over everything from the u.s.'s growing security presence in the region to china's currency and trade. >> i'm a little pessimistic

because in the kind of world we live in where there's a struggle for global demand, that struggle will show up in the trade area. >> reporter: rhetoric about china flared on on the campaign trail with barack obama promising to stand up to china as he heads into his second term. >> i set up a trade task force to go after cheaters. that's why we brought more cases than the previous administration in two terms. >> reporter: cases for example over auto parts and solar panels. on the sidelines of the congress, china's commerce minister lashed out against washington's decision to slap tariffs on panels warning the mauve could backfire it for the u.s. >> someone asked me are you interestering a trade war with the united states. i said no. i hope we can ask you and try our best not to get involved in

a trade ward. but when others tackle businesses in vad our business, i have to protect our businesses. >> many fear the trade essentials could discourage further efforts to open china to outside competition. >> if you look at the last five years, there has not been major progress in that area. so we would like to see a resumption of the opening and reform process which would include widening. >> reporter: it depends if the leaders can see past their differences. eunice yoon, cnbc, beijing. >> we'll take a quick break. but stick around, still to come on the program, we're going to get the very latest on the situation in gazaed according to the latest reports a three hour cease fire has failed to hold. i always wait until the last minute.

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want to bring you news out of japan. we're hearing from prime minister noda about trade

relations, he says he'd like to join the tpp and set up a pre-trade agreement. he says he's still pursuing the path towards no nuclear energy by 2030. he says big election issues will be energy and economy. we may hear more from him with regard to stimulus or the election. if we do, we'll bring you that news when we get it. now to gaza. the prime minister has arrived following two days of air strikes in which 19 palestinians and three israelis have reportedly been killed so far. joining us now from tel aviv where we know rockets landed nearby last night is martin

fletcher. the fact that the rocket has the range capacity seems to be raising eyebrows. >> reporter: it handed pretty close. one landed in the sea and two more landed in other areas in open fields. didn't do any damage. but the symbolism is great because one of israel's key goals have been to destroy the long range capability of has mass. so the fact that after hundreds of israeli raids and strikes against those rocket centers hamas was able to launch rockets at tel aviv which nearly hit, that's a main success for hamas.

>> you can talk about the visit by the prime minister and there was continued violence during the period? >> reporter: the egyptians coordinated the meeting with israel and hamas and they agreed on a cease-fire. israel said that she would stop firing rockets during the prime minister's visit, but there was a condition that the palestinians should not fire rockets at israel and in fact the cease fire was broken first by the palestinians who did fire rockets in to israel so israel resumed their attacks on on gaza. and it was very heavy period. there were 85 separate israeli rocket attacks on gaza. the prime minister's visit was

mostly about support, but also a feeling that there is a hope i guess that a period cease fire was on the agenda, too. >> martin we hope hope to hear more from you you later in the program. thanks very much. meantime tony blair has told cnbc that egypt's role in the crisis is pivotal. >> i think the efforts of egypt and others to create a situation in which we can deescalate and stop it is essential. because if we don't assist israel retaliates, this will escalate and it could escalate in a very serious way indeed. >> joining us for more is david hartwell. david, just heard there from tony blair with regard to egy egypt's role.

how has the rise of morsi transformed the issue compared where four years ago. >> charlie in gar son compariso can't rely perhaps on wholeheartedly as it did on mubarak to rein in thhamas. we're not sure how morsi will deal with the situation. egypt is under fresh frpressuree americans. but clearly we're still in a situation where egyptian foreign policy is still evolving. so we're not quite sure what the rule of the games are. >> are you surprised there hasn't been more of a reaction in the markets? >> not at this stage.

hartwe'll comment about how it will play out is accurate because we don't know with respect to the new administration. but there is potentially a chance it might direct israeli government thinking towards the idea that just constant cycle and recycle of violence doesn't solve the problem. there have baeen countless strikes since 1967. it doesn't solve anything and also doesn't make iz rally citizens any safe p. the idea that there are extare strategic installations, it's shenksly a big refugee camp. it almost seems overplaying it. so the influence of the egyptian government could be potentially

benign. it may have put more restrained response and the idea that there might be some peace initiative. >> david, do you agree the situation could be more benign? good. >> it depends what sort of pressure on hamas. the military leadership of course of hamas has changed in the last two days. there may well be a replacement of leadership. so whether they listen really remains to be seen. quully under what complains the israelis are prepared to end their attacks also remains to be seen. so i think we're looking at a good few dayses yet of continued violence while they figure out

the conditions. >> we're looking at live pictures of gaza. earlier we saw smoke rising on t the who are rye sooiz. what are the prospects at this point of ground troops? >> i still think that that isn't an immediate prospect. i think they clearly have that as an option. i don't think they want to get involved in the ground incursion. it tends to become more difficult to extricate themselves. however, they seem to be relying on what strikes however you choose to define that air power, that type of thing, to -- as your correspondent said before, this hasn't worked in the past and so there will come a point

whether they decide it's worth deploying or you sit back and take stock. >> david, thank you very much for your time this morning. still to come on the show, angela merkel arriving in loss cow for a meeting with putin. [ss

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air strikes continue despite an agreed three hour cease fire as the egyptian prime minister visits the strip vowing to spare no effort to achieve a truth. japan has dissolved its lower hoist and sets the stage for a possible comeback of the former prime minister. and president obama begins budget talks and both sides are digging in their heels on tax hikes an spending cuts.

ex-take down is down and just behind it are the cac 40. ftse 100 shedding half a percent this morning. red arrow as cross the bond wall. spain and italy seeing yields come lower. forex down about a third of a percent against the dollar. dollar-yen 80.98. it was above 81 a little bitterier in the session. the ted has outlined the new details of a new round of stress tests set for next year. they'll include three scenarios with the most severe including a slow down in china as well as major recession in the u.s. and europe. how significant are these stress

tests and are the a their yoezs that they layout feasible? >> they are significant and it's interesting that they're doing it reasonably soon after the last round. but i think the banks named are in reasonably good condition and should meet the new scenarios. not with ease, but they should be over the line. so i don't think the market is concerned at this point. >> now it's a new normal. >> and it's both sides of the atlantic. that would be even more you get a european bank union. but it's like part of the normal landscape now. scenarios can be quite extreme, so if you're passing them, it's good. >> one final point because i know you have to leave us. capital levels at banks are

actually higher in the 20 years before basel. >> it isn't necessarily the case that you need to seek higher capital levels. but self regulation is a dirty word after the crash on wall street, but it is interesting how if you look at the statistics on both sides of the atlantic, in the 20 years prior to 1992, bank capital levels were higher when left to their own on devices. 20 years after, bank levels have come down to the minimum stipulated. so it's interesting about what banks will dough when left to their own devices. i would agree we need to simplify than the more complex

model of basel 2. >> why not use basel 1. it's already there. >> some necessarily do because they don't trust the bank and he stern al molds. but i do think it's interesting, there is no strong conclusion, but one should note that pre-basel, bank capital levels were higher. >> good point. thanks for all your time this morning. >> my pleasure. >> turning to angela merkel meeting with putin today, this costs as a resolution was passed expressing concerns on civil liberties. joining us is john mcroberts in studio. hi, john. >> hi. >> this relationship between germany and russia by some measures is at its worst in

decades. has there been a real break down between russia and the west as pew ten has come back into office? >> i don't believe there's been a break down. i think the perception of russia has been difficult from western investors. when you see human rights case come up, people get a bit more nervous. but general employeeliemployee russia is still a good place to invest. >> a lot of cross border deals. is the environment todayl emplo russia is still a good place to invest. >> a lot of cross border deals. is the environment todayemploye russia is still a good place to invest. >> a lot of cross border deals. is the environment todaymployee russia is still a good place to invest. >> a lot of cross border deals. is the environment todayployee a is still a good place to invest. >> a lot of cross border deals. is the environment todayloyee i is still a good place to invest. >> a lot of cross border deals. is the environment todayoyee i is still a good place to invest. >> a lot of cross border deals. is the environment todayyee i f still a good place to in more or less friendly? >> there is no compare ton. when mr. putin came in, he changed the tax code which made a huge difference.ie ton. when mr. putin came in, he changed the tax code which made a huge difference. it was 13% flat tax, corporation tax 24% and suddenly you couldn't invest in companies

because could you understand what was in the financials of the company. so accounting firms grew. advisory firms grew and the market became a much better place to invest. so today i don't believe there is a huge difference. you just have to understand the environment. >> so does it create opportunities? if you're looking around the world and not seeing a lot of attractive places, should russia be one of them? >> russia should be. it's growing at 4%. it's the biggest consumer market in europe. so there is enormous amount of opportunity. the problem has been and continues to be the perception western investors have about investing there. so there is this sort of idea that if you invest in russia, you'll lose your money, people will steel your money, and

that's not the case at all. >> what are the sectors you like? >> we invest in the services sector. mobile phone sector is growing really well. the banking sector has a huge opportunity. there's still far too many banks in russia, so there's consolidation. and people like we have a diy business for example which is growing very quickly in the regional regions of russia. retail is very interesting, as well. >> so what would you say if you were involved in the dialogue day da with the germans? >> well, i think it's quite a difficult balance really. i think russia is looking to germany and europe to provide stability with respect to the

euro. they feel greece is close to the russian situation, so people become frighten of investing in markets like russia. so i think russians will be looking at merkel to give them assurance that the european situation will be sorted out. >> over in japan, election fever has hit the country. let's go to the nikkei for the latest details. >> that's right, n on oda is paving the way for japan's first

general election since his party the democratic party of japan a came to power in 2009. noda will face a leader who ran the country as a prime minister back in 2006 and then stepped down a year later due to ill health. his party is widely expected to win the most seats in the upcoming letter, but support ratings for both the democratic party and ldp are low. a former tokyo governor has also formed a new party. the sub rise party. this party is likely to merge with a bigger party led by a bigger government party. prime minister noda is having the news conference as we speak and reiterated his policy ahead of the upcoming election

including abolishing nuclear power plants by 2030, willingness to enter talks for japan to enter the tpt and basic stance that national should be avoided avoid avoided. back to you. >> joining us on the line is a reuters breaking news columnist. andy, you can tell us your interpretation of process spe t spepgspepgcts for a fresh >> the fact they will have an election is three months now so it's not really a surprise ever since noda cut a deal on on his proposed sales tax increase. it will double by 2015. so ever since that deal got

done, we have known that elections will have to be called. and now noda has simply kept that promise and called for elections on december 16th. the yen has weakened a little bit of late in anticipation of the elections. there have been dovish comments, if you will, with regard to what he wants from the boj. he's saying you need a higher inflation target and the bank of japan and you you need at least 3% nominal gdp increase and the bcht oj may have to surrender some of his will independence and let the government have more say in how monetary poll ol city

is run. >> we're getting comments on the wire from noda where he says there is who question that government and the bank of japan need to work together to defeat inflation. where is he trying to draw the line here, is the ldp if nothing else being more honest about the fact that they're going to excerpt this prez. >> exactly. if the current institutional arrangement which does not allow the bank of japan to weaken the currency, that institutional arrangement is clearly not working. while the bank of japan does have an asset purchase program, it must be remembered that that program has done very little to weaken the yen meaningfully.

it has only produced temporary successes and never a move towards a weaker yen. and given the fact that we are in a bit of a competitive devaluation game here with mr. ben bernanke running qe infinity, if you will, notally a qe-3, so japan does need to drop the pre-senses and say bank of japan is going to be buying foreign bonds. it can say the electronics industry, for one. >> secretary aside the prooder significance of getting rid of the bank of japan's independence effectively, can you comment on where you see the yen going from here? are we talking about a triple digit yen and if so how quickly? >> no, because essentially

although we have chepts of how they want to see a more aggressive bank of japan policy, we must still remember that this election may not produce a clear winner in which case there will be horse trading. so what we are going to then end up with a probably is government which has to tone down even if it's headed by him, it has to tone down some of its rhetoric and therefore move toward triple digit yen, come i don't see it on the horizon. >> okay. andy, thanks very much for calling in this morning. shobingly enough, it sounds like there is some election nearing going on. still to come, italy's finance

minister says it could take years before the debt crisis is resolved.

investors have been pulling out of apple stock in recent week. apple last lost almost 20% of market value. so what's behind the drop? head to cnbc.com to find out why investors are drawing the stock lower. and if you want to join the conversation, worldwide at cnbc.com. @cnbcwex if you want to respond to that or any of the views you've heard this morning. john mcroberts is arguing that russia is an attractive investment opportunity. dell's third quarter profits fell by nearly half missing analyst's forecasts as the company continues to struggle with more consumers shifting from pcs to tablets. kell is protecting another decline in the fourth quarter. shares down 1.5% after hours.

2% there. you can see in frankfurt trade this morning. the gap's third quarter profits beat forecasts on on strong same store sales growth. the company says banana republic's tie in with mad men was a big success. gap is raising its full year outlook by the way. shares up 3% after hours trade adding about 2.3% this morning in frankfurt. so keep an eye there on investor reaction. italian finance minister says ro rome still has a lot of work to do and i asked just how bad it might get for italy. >> we're still in very, very soft situation. so the reform agenda we put in place doesn't end here. we have to keep pushing and to keep progressing in our restructure of italian economy.

and this is taking place? still soft market, so we have to take that into consideration and we know that part of being in the market under normal condition is also the italian effort to convince the market that now we are making good process and we are achieving results. >> do you expect italy to grow next year? >> our forecast is a flat economy. we think that starting second quarter we'll see in-investigation in-inversion of the stretrends and we'll sta growing. we're sure we have have introdu major changes and our potential output has switched gear. but it will take time to see it.

>> and we heard one ecb board member say he expected to be gripped by this crisis for perhaps a decade. do you think it will take that listening? >> i'm more optimistic than that. i think we are living through a deep crisis clearly without press department since the second world war ii and the situation will need to progress for many years. now, i think that the crisis now with the new innovation in the crisis management and crisis tools has been a major improvement. having solved the crisis of being in sort of the almost there in solving the crisis doesn't mean that the economy now can go back to normal business. we have to go through deep

changes to really face an increase in competition worldwide. so that is a long process. >> how important is it that a banking union is in place soon? >> we believe it is very important to fully share the proposal by the commission both in the time tame and in the kind of proposal and sub sense that they put on the table. we think it's an integral part of the economy and also frankly part of establishing a much more integrated credit markets. we have a single better supervision. we know at least what concern us right now is credit market are still segmented along national borderline. this is not healthy. and part of making credit market

unified is also having unified supervisory system. and that's why we're strongly supporting it. >> that interview and his comments are available on on cnbc.com. p they do stand against germany's dragging it heels on the banking union. president obama begins his southeast asia tour this weekend just over a week after he was reelected. bernie lo has more in this report from bangkok. >> he'll embark on a three nation tour that will take him and his air force one contingent to myanmar where he's expected to express content and satisfaction over the democratization process. next up is island where he and the prime minister will of course discuss bilateral ties including thailand's desire to be included in the transpacific partnership and american led initiative to free up trade in the region and united states but

excludes china. and they'll reaffirm long running military ties, as well. and last regular of the tour is cambodia. leaders will meet and top of the agenda is of course the lingering long term simmering sovereign disputes in the south china sea. >> let's take a look at the agenda in asia. asean leaders sum submit gets under way. the two day rate setting meeting. and third quarter gdp figures in thailand. if you want to send in your thoughts, worldwide at cnbc.com.

and still ahead, we're heading out to washington ahead of pivotal budget talks that begin today. will they avoid the dreaded fiscal cliff. ben white offers his thoughts. having you ship my gifts couldn't be easier.

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air strikes between israel and militants in gaza continue despite an agreed three hour cease fire as the egyptian prime minister vows to spare no effort to achieve a truce. japan may see its seventh prime minister in six years as the country dissolves it low are house. plus president obama meets with top u.s. lawmakers today to begin budget talks as the fiscal cliff deadline looms. both sides, though, are digging their heels on tax hikes and spending cuts.

let's take a sense of how u.s. futures are trading, and more red on the wall behind me. the dow jones industrial average pointed to open lower by about 30 points taking fair value into account. the nasdaq and s&p also looking to shed at the open. and this follows of course a string of losses for these major indexes, trading patterns that many are describing as ugly bear marketish respect can we turn around from here? well, the mood overnight isn't necessarily that supportive. shanghai composite, down much closer to the 2,000 level that had a lot of people concerned about what traders were seeing. the outperformer for the region, though -- they jumped it too soon. was the nikkei. the nikkei up 2% greater than 2%

today. that was following similar gains yesterday. have a ordinary gains here in the the financials and particularly benefiting as the yen continues to weaken. plenty more on the situation in japan throughout the issue. now across europe, we are seeing more read yet on these major indexes. ibex 35, cac 40, xetra dax all down in the range of more than 0.6%. and again importantly germany leading the way lower here, down 0.8%. the ftse 100 also down by 0.6% for its part. let's take a look at the bond trade. more of a differentiated picture, but for the most part, there is some rotation out of stocks and into bonds this morning with the exception this morning of the the gilt. but italy, spain, the german bund, all seeing prices rise. yields come down a bit. italy and spain in about the 86 region. quick look at forex.

the dollar-yen back up over 81.this as japan is potentially bracing for major plig change. noda doesn't want to hurt the central bank's independence, there is clear scope for the boj and central government to be working more closely together. commodities as we continue to follow the story out of gaza, we'll have more on that coming up in just a little bit, but nymex and brent crude importantly are now both lower, just slightly lower on brent even. and it should give and you sense of just how weak the dynamics are. president obama will begin budget talks with top you lawmakers today in hopes of reaching a deal to avoid the increase. 's meet with harry reid, mitch

mcconnell, john boehner and nancy pelosi at 10:15 a.m. eastern. speaking on on cnbc thursday, the co-chairs of president obama's deficit commission alan simpson and erskine bowles say you law make are haven't been focused on what's really right for the country. >> leaders who think it would be to their advantage to go off a fiscal cliff. what a wonderful trait that is. that we can win more democrats if we let it go over, we can win more with republicans. this whole game is not about win or lose. it's about how do we make the dems lose and how do we make the republicans lose. people are sick of that and they're ashamed of if. >> if we do get our house in order, the future of america is really bright. and we can compete with the best and brightest. if we don't, we're well on on our way to becoming a second rate power. >> simpson isn't hopeful a deal will be reached before the end

of the year. bowles sees a one third chance. on that optimistic note, joining us is ben white from politico. so what's it going to be, economic chaos? >> no, i think i'm at more saa more sanguine. republicans lost seats in the house and senate and big at the presidential level. i think they're putting up a good face that they won't allow any marginal rate increases, but you've seen republican governors meeting in las vegas, they basically said we lost the election, president obama -- we have to figure out a way to cut our losses. maybe not get the full increase at the top level, take some of that in return for spending cuts and move on to fight another day. so i think there will be a deal on the fiscal cliff whether in the next congress we get the broader deficit reduction

package that includes fixes to social programs a and 4 trillion over ten years is another question. but i think the fiscal cliff gets fixed. >> it's interesting because talking to austan goolsbee the other day and asking him about the prospects for some major agreement, he said it still feels like there's one last celebrity death match to be fought. what's your sense around the belt way, is it that lawmakers are sort of tired after last year's negotiations and trying to avoid a similar outcome or do you get the sense that there may yet be another sprawl? >> i think this is more of a zombie death match. i think there will be always of it, there will somebody show of a big fight. and today when they meet with -- the president meets with the congressional leadership, they won't come out and say happy days are here again, we made a deal. this is the opening sal vow, this is going to be feeling the other side out. but there's a big dichotomy in power levels right now on the

tax issue. the public is more with the democrats on this. so i don't think there will be that death match in december. i think you'll see a little bit more of the rhetorical back and forth and then they'll find a way to get new revenue. it will be through combination of increased rates and more deductions -- reducing deductions for the wealthy, whether the mortgage deduction or charitable giving. and i think that deal will get made, fiscal cliff will get taken off the table, sequester spending cuts will get taken off the table. so i think first a little bit of the death match and then much more deny r. agagentle in decem. >> what happens if we come into the new year and no major reconciliation between the two sides? are we going to be able to reach some sort of deal in december that avoids having to come back and have the very same discussion in january and february? >> i think that would certainly be the hope. the republicans didn't want to have that fight again over

raising the debt ceiling. they lost it the last time around. so i think you'll see an effort to wrap in a debt ceiling increase into these end of year talks so we don't have to go through it again in january, february. there is no desire for that on the part of republicans. so i think they want to get it all done, take their medicine at the end of this year and then fight again next year on making real cuts to medicare, social security over the long term to please their base and also their general outlook on reducing government spending. so i think you get a big omnibus deal at the end of this year with some trigger in it that would force action on title reform in the next congress. the big question is what is that trigger. it won't be the sequester because nobody liked that, but there will be something in the package that makes them sit down at the table next year and do tax reform and entitlement reform. >> i wonder if the message isn't going to be for the next generation in congress that if you want to do tax cuts, make sure you make them permanently and not temporary.

>> george bush would have loved to do this and he couldn't get it done. the theory among republicans was there never will be enough votes on a tax increase, so we'll extending it. democrats have been steadily pushing back and now have the higher ground on the 250,000 and above, general consensus in the public in the united states is it's fine to let those taxes go up. those people are doing okay. i don't think you'll see a lot of tax cuts in the future on on a two year basis because it's painful for everybody involved. >> us included. ben white, thanks very much. you can hear constantly global leaders saying to the u.s. please don't mess this up for us. you're the one last growing economy in the world. now, imf christine lagarde says eurozone leaders must reach an agreement next week, but when asked if the deal would happen, this was her candid reply. >> it's not over until the fat

lady sings as the saying goes. and i would not say anything else. it's a question of working hard, putting our mind to it, making sure that we focus on the same objective which is that the country in particular greece can't operate on a sustainable basis. >> to be perfectly honest, i don't even know what that means over until the fat lady sings. in any case the fed has outlined the details of a new round of stress tests set for early next year. they include three scenarios, the most severe being a downturn in china as well as major recessions in the u.s. and europe. those situations result in a 50% decline in stock prices, 20% in home prices by the end of 2014, and a spike in the unemployment rate to 12%. banks must submit their capital plans to the fed by january 7th. dell reports another disappointing quarter as the company continues to struggle with consumer shifting from

using pcs to tablets. jackie deangelis is breaking can down dell's numbers for us. >> well, dell reported third quarter earnings of 39 cents a share on revenue of 13.72 billion. missing analysts expectations slightly on both the top and the bottom line. in terms of the guidance, the company expects sequential revenue growth of 2% to 5% backing its projection for the full year earnings of $1.70. on on the conference call, analysts got a little bit more color. dell said it does expect the global macroeconomic environment to remain challenging especially on the consumer side. regionally, the emerging markets which have traditionally been robust have also slowed a bit. management said that while they are focusing on cost reduction in order to stay competitive, they're also sticking to their focus on the mid to high value part of the business, not chasing the low end consumer space. and lastly, in the tablet space, the focus has been on on the commercial side. they see a profit stream there, they think that they can compete. tablets of course also offer a

lifecycle with services and other add-on oadd-ons. >> dell shares down about 1.5% after hours. not surprising given the broader pressure. another it tech stock under pressure, apple. in the past month, apple has lost almost 20% of it market value and that is a bear market territory. so what's behind the drop? panic selling, a lack of buyers? disappointment over new product releases? head over to cnbc.com to find out just why investors might be driving the stock lower and where you think apple shares are headed now. is this in fact a buying opportunity sf jo opportunity? join the conversation here. you can e-mail us with your thoughts. stick around, because still to come, will china's new leadership embrace friendlier ties with the u.s.? we'll head to beijing for a lower look. i always wait until the last minute.

can i still ship a gift in time for christmas? yeah, sure you can. great. where's your gift? uh... whew. [ male announcer ] break from the holiday stress. ship fedex express by december 22nd for christmas delivery.

you're looking at live shots out of gaza. the egyptian prime minister has arrived in gaza following two days of air strikes.

he denounced the attacks asing a agrees saying he would intensify efforts to halt the violence. meanwhile the eu's foreign policy chief just said she's deeply concerned about the escalating vie len and add that had hamas rocket attacks are totally unacceptable and must stop. chinese officials including the vice finance minister are sounding alarm bells. finance chief says he hopes the u.s. will come to some soft of an agreement or face possible recession. eunice yoon is taking a closer look at the relationship and how it's eekly to proceed post-obama's re-election. >> li is sitting down to her regular taste of americana. she and her co-workers design

out twice a week, exactly the kind of middle income chinese americans hope will drive growth. we're used to eating rice, she says, it's convenient and nice to have fast food once in a while. american companies hope more chinese will embrace that change. they're hoping the new leadership in china will make it easier to sell to chinese consumers and reset the recently inside relationship between washington and beijing. can see how the relationship is. their american brands everywhere. companies like mcdonald's are sink their teeth into the china market. china is one of the biggest markets outside the understand, allowing the chain to gain new kus. in return, mcdonald's hires tens of thousands of chinese. the u.s. is one of china's top

export markets while china is becoming a major destination for american goods. but with the global economy struggling, tensions between the two major trading partners have been rising. over everything from the u.s.'s growing security presence in the region to china's currency and trade. >> i'm a little bit pes pick tick because in the kind of world that we live in where there is a real struggle for global command, that struggle is going to show up in the trade hear. >> rhetoric flared on the campaign trail with barack obama promise to go stand up to china. >> i set up a trade task force to go after cheaters when it came to international trade. that's the reason why we have more more cases against china for violating trade rules than the prem administration had done in two terms. >> reporter: cases for example over auto part and solar panels. on the i'd lines of the

commerce, china's commerce minister lashed out over the decision to slap tariffs on on panels warning the move could backfire for the u.s. >> one asked me are you you in a trade war with the united states. i said no. i hope we can sit down and discuss and try our best not to get involved in the trade war, but when i have to protect our businesses. >> many international business leaders fear trade tensions could discourage further efforts to open china to outside competition. >> if you look at the last five years, there has not been major progress in that area. so we would like to see a resumption of the open and reform process. >> reporter: experts say whether that happens and how fast depends on if the leaders can see past their differences to build on their nation's long

time relationship for their own sake and the good of the global economy. air strikes in gaza continue despite an agreed 24r50e hour cease fire. japan may see its seventh prime minister in six years as the country dissolves it lower house. and president obama meets with top u.s. lawmakers today it begin budget talks as the fiscal cliff deadline looms. still to come, nintendo and microsoft are duking it out for a holiday sales boost, but will digital downloads be the grinch that steals christmas? we'll discuss.

gap's third quarter profits jumped 60% beating forecasts on on same store sales growth and improving margins. gap is raising its full year outlook and shares are up 3% after hours. and video game makers may have some lumps of coal in their stockings. sales down for 11 straight months. but with the new console from

nintendo and tree io of blockbur titles, they may find some holiday cheer. ed, how important is the holiday season and when it comes to whether it's the console or some of the new games, are these going to be able to stem the red tide that we've seen? >> the holiday season is absolutely critical to the year. each week is more important than the previous week. so it makes or breaks the year for video game sales. and as far as bucking the trend

of the poor sales data, i think we'll see improving comparisons, but magnitude should improve fairly dramatically. >> mobile is clear and i a game changer. has the industry moved as seeing it as a threat to more of an opportunity or is it just the case that kept is important and devices less so? >> i think it's more that comment is increasingly important. you'll have different types of games and different types of devices. but mobile i think is becoming much more important and it is cannibalizing a dedicated handheld software sales. >> we have a big launch coming up on sunday. it's the eoig u. what is it and how important is this for nintendo and for the

industry? >> it's the first new console to launch since 2006, so pretty important catalyst for the category as a whole. it brings in two screen gaming to the living room. the biggest change or a significant change that it provides is a tablet device that you'll also use to help control the gaming experience. so i think it's important, i think it's next year when we believe we're likely to get new consoles from microsoft and season any which will probably be a little more important to the category as a whole. >> and let's get into some of your stock picks here. who in the industry has potentially the least down side or where do you see opportunity as we enter the holiday season? >> it's really being a challenging year for the industry as a whole. but if i were to look at a

handleful of stocks that are positioned well, i had like at assassins creed franchise. it's been off to a re robust start. i would look at activision blizzard. they may have a bit of a challenging year as we go into calendar 13, but franchises are robust. and into electronic arts has experienced significant success. that should be well positioned as we go into calendar 13. >> all right. ed, will you be in line for that wii uconn so console? >> i'll be ready to go. in tha >> thanks very much. we've talked about the battle between gaming devices and box

office. now the battle between vampires and werewolves at the box office. yes, the final film in the twilight franchise breaking down part 2 launches in theest. jul julia boorstin goes to the movies with us. >> projected ed ted to gross a $145 million to $150 million. by wednesday, itted had already sold some $16 million worth of advanced ticket sales for the u.s. box office this weekend. fans are expected to come out in force. thousands of showings are already sold out and the film represented 92% of all advanced ticket sales on tuesday. the first four films grossed a total of 2.5% and in foreign markets, the fifth film is already outperforming.

where it opened wednesday, it grossed $14 million just that day. this weekend it will open in over 60 international territories. the final film in the series will certainly prove a win for lions gate which brought the producer $412 million back in january. and also theater chains like amc, regal and imax will benefit from the fact that the teen audiences tend to spend more money on on candy and soda. and they're likely to return to watch it multiple times. movie goers seem eager for blockbusters. >> five movies. and where the series reportedly takes place has benefited seeing

a tourism boost. stick around, because still to come on the show, president obama is hosting top lawmakers at the white house to try to hammer out a deal on the looming increase. but is time running out.

these are your headlines. president obama meets with top u.s. lawmakers today it begin budget talks as the fiscal cliff deadline looms. air strikes between israel and militants in gaza continue despite a three hour cease fire. and japan may see its sixth -- that is seventh prime minister in section years as the country dissolves its lower house and sets the stage for come back of a former prime minister.

dous jones looking to open lower by about 20 points at the open. nasdaq and s&p also pointed lower. it's been a risk off period. the ftse global 300 suggests there is not much to turn around sentiment this morning. we're down about a little more than a tenth of a percent in overnight trade. only the nikkei really helping to bolster things overnight. european markets are also in the red this morning. a little bit -- we've actually moved more to the down side. how do you make money? this is what our guests have

been telling us. >> i'm positive on sterling. it's going against structural themes. one big trade that has worked well this year is go long aaa or long norway, sweden, australia, canada. >> france has problems and we should wear in mind as well that french yields and terps have hit an all-time low this week along with belgium years for example and both have run remarkable pressure. if you remember october november last year, things have really changed. >> we have dovish on gold prices. at the end of the day, remains very low and --

>> see what you miss if you're not watching all morning? president obama will begin budget talks with lawmakers today in open onning to avoid the fiscal cliff. he'll meet with harry reid, mitch mcconnell, john boehner and nancy pelosi at 10:15 a.m. eastern. speaking thursday, erskine bowles says he thinks there's a one third chance congress reaches a deal during the lame duck session. >> we don't have a deal and the market doesn't anticipate that we're going to be so stupid as to go over the cliff, i think you'll see the market really crash and the rating agencies downgrade our credit. i think you'll see corporations lose confidence. i think you'll see them slow down hiring, stop capital

expenditures. it will be a hell of a mess. >> steven kyle joining us from cornell university. thanks very much for joining us. a hell of a mess? do you agree? >> well, it makes sense for them to paint it that way, but i think people are remembering the debt ceiling debacle take goal us in this situation in the first place. if we were to get to january 1st and saw the first week or two worth of tax rate increases and spending cuts go into place that's not a good thing, but it's not the end of the world in the way that hitting the debt ceiling would have been. >> we are going for face the debt ceiling just after the start of the rear.'t grapple wi

issues now, we could face fallout. >> and we're see something fallout now. anytime you look at congress and they're playing with capital gains tax rates, you start to think maybe shy take ta some profits. on the other hand once they do figure that out on, and i think they will, call your tax lawyer and if he can't tell you what to do, fire him and get another. but i don't think that there is any serious danger of them not coming to an agreement at the end of the day. it may seem a bit actually, but the sake tax rate that they may want to raise things to is called a tax increase and on january 1st, it magically become as tax cut and those folks in congress can then happily claim that they neff raised taxes.

and if that happens, we'll get our higher debt ceiling, we'll get tax rates where they would have been in december. and we can continue from there and money can come back in the market. didn't get me wrong, i don't think any of this is a good thing. this brinksmanship doesn't do anyone any favors. not in the market certainly because uncertainty is a really bad thing. but let's remember if we're looking at for example 100 billion of spending cuts over the year because of the fiscal cliff, one 12th of that

happening in jab is not a good thing, but it's not the sky fall. >> it's the reality of what we're confronted with. from your voint of view then, what is the ideal outcome? if you could wake up tomorrow and wave a only make wand, with a would you tell them in. >> if i were king, i would tell them let the tax cuts -- let the bush tax cuts go away. that would solve our long term budget problem. and put in place a massive infrastructure investment program because we'll have to buy that stuff anyway. and what better time to make a capital investment. i don't think there's any chance of that happening. but that's what i would do if i could wave my wand. >> professor kyle, cornell

university, thank you very much for joining us this morning. now the egyptian prime minister is visiting gaza following two days of air strikes. he denounced israel's attacks and saying he would intensify efforts to halt the violence. the eu foreign policy chief has said that she's deeply concerned about the escalating violence and added that rocket attacks are totally unacceptable and must stop. joining us now is martin fletcher following the story for us. martin, good morning. we've heard the violence continuing. what's the latest now? >> israel's complain for the cease fire was that palestinians shoulds also cease fire and that didn't happen. and there's been a flurry of activity this morning with

israeli airplane strikes on the targets. so more of the same. 85 separate israeli air strike this is 45 minutes. but at least there was an attempt. and the cease fire is a mission of support, but also to try to encourage hamas to deal with the more longer term cease fire. there is a possibility that the turkish prime minister will also visit gaza. so there are s. a lot of international pressure building up on hamas to agree to a cease-fire mainly because everyone is of a phrase of an israeli ground invasion. all signs are that ez really is really building up its forces.

16,000 soldiers have been summoned to their bases. so israel is making every preparation for an invasion of ground invasion of gaza. doesn't mean it could happen. it could just be a show of force. but it could also happen and that's what everybody is very wary of. >> and if this is a campaign tactic, it's a pretty serious one. >> as we all know, you can start a war. you don't know how it will finish. >> martin fletcher out of tel aviv, thank you very much for joining us. we'll be following that story. also still to come, dell's third quarter problems miss analysts forecasts. find out why the pc maker is suffering next. having you ship my gifts couldn't be easier.

well, having a ton of locations doesn't hurt. and my daughter loves the santa. oh, ah sir. that is a customer. let's not tell mom. [ male announcer ] break from the holiday stress. fedex office.

. air strikes between israel and militants continue despite an agreed three hour cease fire. japan may see iseventh prime minister in six years. and president obama meets with top lawmakers to begin budget talks as the fiscal cliff deadline looms. a couple other stories we're following, the fed hassout lined

the details of a new round of stress tests. it would spike unemployment at 12%. banks must submit capital plans to the fed by january 7th. now, u.s. regulators reportedly plan to accuse jpmorgan with being lax with its money laundering practices. the "wall street journal" says the office will give a cease and desist order. regulators are investigating jpmorgan's risk controls surrounding the loss in its chief investment office. the occ will reportedly require the bank to beef up its procedures. jpmorgan shares adding just a tenth of percent in frankfurt trade. obama administration is planning to take steps to fill the

capital hole to help avoid the need for taxpayer bailout, department of housing and urban development says independent audit found the fha's capital reserves had fallen into negative territory. hud plans to outline measures to shore up the pha which insures one out of every three u.s. mortgages. and dell continues to struggle with a shift from pcs to tablets. sales to consumers dropped by nearly a quarter. dell is projecting another decline in its first quarter. and apple lost almost 20% in the last month alone. is it lack of buyers or disappointment? more information at cnbc.com. and we've asked you where you

think apple stock is headed now and whether it's a buying opportunity. jeff tweets in to say he's unsure whether it's a buying opportunity. it's lacking a jobs like new market moving product. disagree us @cnbcwex.

#. a pair of notable earnings on the calendar.

foot locker and jm schmucker. president obama will also begin budget talks with top lawmakers in hopes of reaching a deal to avoid the fiscal cliff. he meets with harry reid, mitch mcconnell, john boehner and in an say palau and i. in an say pelosi. speaking on on thursday, simpson and bowles said washington hasn't been able to resolve the fiscal cliff because lawmakers haven't been focused on what's right for the country. >> leaders think it would be to their advantage to go off the fiscal cliff. what a wonderful trait that is, that we can win more as democrats if we let it go or more as complains. people are sick of that and they're ashamed of it. >> if we do get our house in

order, future of america is really bright. if we don't, we're well on our way it to becoming a second rate power. >> bowles sees a one third chan of a deal during the lame duck session of congress. a one third chance nothing gets done and the economy moves into chaos. let's hear in michael gurhka. the economy moving in to chaos, is that why we're seeing this market action? >> i'm not surprised because on the equity side, it's always about confidence and right now a lot of politicians have not given the market any confidence whatsoever. so you'll continue to see volume. but i've been watching the bond market and gold and current cities. >> the fact that we haven't

seen -- we're looking at the volatility index here. it's only up about a fourth of a%. actually done over the last week. are where he bracing for more of a significant selloff? >> i'm a big fan of weekly charts and i look at three years on out because it really helps to give us a base of where markets can be going. and it looks as though 1317 is the real level of support in the market. from there if we start to go through this, it's 1180 next. that's where a pull back turns into probably a correction. and that's what i'm talking about in regards to how confidence comes into play with markets because right now it just seems as though u.s. equities are not positive on what they see going into here. and more importantly the result of that factors into the first quarter. and right now i think that leads to start seeing profit taking. >> and we need to talk about

earnings of course. so at the same time as the macro concerns dominate, is there a sense in which the internal dynamics are worrying? >> it's really on the global side have aen set backs recently on earning. retail and food side. and that's a little surprising only because it's the first time these pristine balance sheets have started to see some stress. and it doesn't look as though it will be this ongoing lingering concern, but what it does is it gives fundamental backbones to some of these in-deks showing uncertainty and i think again that's one of the reasons why you're seeing bearish tones. >> if there are two things that point in the direction of higher asset price, i would say it's unlimited q eche and there's an0 million clo deal that got done. so we're seeing dynamics in the credit markets still looking

quite supportive in the longer run. >> the deterioration of credit prices on the yield side is starting to subside somewhat and that's a reason why i'm starting to look at some of the forecasts where even politicians are starting to look at quantitative easing has effectively run out as of 2015 and i think the yield curves will show you that first. at the same time maybe growth expect takes and of course higher rates, that's where the uncertainty starts to come in. >> michael gurhka, thanks. great to see you. anxious and thissi ing and thank you all for tuning in. now it's time for "squawk box." ♪

♪ ♪ [ male announcer ] some day, your life will flash before your eyes. ♪ make it worth watching. ♪ the new 2013 lexus ls. an entirely new pursuit.

our top stories, let the negotiations begin. this should be fun today. congressional leaders head to the white house. and the markets are watching. the dow is down 5% now since election day. closing in on 1,000 points as investors fear what could happen if a deal isn't reached in washington. it is friday, november 16th, 2012, and "squawk box" begins right now. good morning. welcome to "squawk box." i'm becky quick along with joe kernen and andrew ross sorkin and stocks are on a losing streak. we're coming off three straight declining